Macroeconomic Trends in South Africa REPORT (March 2023)

The Bank failures in the US and the difficulties facing Credit Suisse (which resulted in an engineered merger with UBS) in Switzerland have “undermined confidence in the banking system and will be felt for years” [1]. If this crisis of confidence is not adequately responded to, it may slowly lead to growing instability and culminate in a full-blown global financial crisis. Although rising interest rates have been identified as a main factor behind the turbulence in the banking system, central banks have continued to raise rates in their responses to higher inflation while using other tools to prevent the risk of contagion spreading across the financial markets. These events have added uncertainty to the future direction of a world economy already under stress due to volatile international economic and financial conditions. The South African monetary authorities have responded to this growing uncertainty by further raising interest rates. The latter is likely to weaken the South African economy, which is already faltering and expected to register near zero growth in the near future.